This Tax Season—I’m So Glad I Live Abroad

I don’t know what to make of Elon Musk and his grandiosely misnamed Department of Government Efficiency—a make-believe agency that, according to various and numerous reports, including Elon’s own words, has found a lot of make-believe fraud.

But I will say this: Here in the middle of tax season, DOGE has shined a lot of sunlight on some of the head-scratching expenses on which Uncle Sam’s financially illiterate corps of moppets has been spending my tax dollars and yours.

Honestly, some of the reported costs are highly annoying, even when they clearly don’t rise to the level of fraud.

Those costs sting especially hard right now because I spent the weekend working on my 2025 taxes. And as I did last year, I’m doing it all on my own.

I don’t mean that I’m answering questions on TurboTax and filling out what is effectively a paint-by-numbers tax return. I mean I was elbows deep in the raw paperwork, inserting numbers into individual forms, completing worksheets, reading through instructions for each form, and making sure line 18 on Schedule SE matches up with line 3 on Form 1040 and line 14c over on Schedule C… or whatever.

And here’s my big takeaway.

Well, two takeaways, really:

1. Taxes are not as big a root canal as we all assume they are.

I mean, if you’re a congressman and you have all those offshore accounts and trusts you’re using to shelter the payments that lobbyists funnel to you so that you will vote against what’s best for America and vote instead for a $50 bajillion dollar rider on an agricultural bill to provide subsidies to members of the American Ferret Farmers Federation… well then, yes, tax returns can be a bear.

But when you’re just an ordinary American trying to accurately record your income and, in my case, self-employment expenses and whatnot, tax returns really aren’t that difficult. Just time consuming.

There’s lots of reading and a few worksheets to fill out, and a good bit of double-checking that numbers match up across the forms… but it’s a weekend job, at worst.

2. I am so glad I live overseas.

Frankly, this is the main reason for today’s dispatch. I just wanted to set up the story more colorfully than to start off by saying, “Hey, dear reader—today we talk about taxes overseas!”

You would never have made it past the first period.

But here we are, already a third of the way through, and you’re engaged and you’re about to learn why there are such great tax advantages to being an American expat living, and particularly working, abroad.

How’s this for a starter: I got to write off the first $126,500 in income this year.

Every American working overseas gets to do that.

Right off the top.

Poof!

Away goes $126,500.

Meaning I pay 0% personal income tax on that amount.

Nada. Zippo. Zilch.

Money that would go to the IRS at a marginal rate of 24%… all that money stays in my bank account.

I like that.

So does my bank account.

It’s the result of what’s known as the Foreign Earned Income Exclusion, or FEIE. Every year, those Americans who can prove they live/work overseas are eligible to file Form 2555—the FEIE form.

The only tax I owe to Uncle Sam derives from passive income such as dividends and interest, capital gains, and in my case self-employment receipts.

For me, self-employment is the big one—15.3% of my company’s net profits, which is well under my marginal rate. But I can reduce that rate pretty dramatically through all the various deductions I can legally claim for operating a home-based business as a self-employed contract-writer, which I run through an LLC.

The net effect is that my overall US tax rate is well under 10%.

Ah, but El Jefe—you owe taxes to a foreign government too! So, your taxes are not that cheap.

Actually… no.

See, here in Portugal, I qualified for the country’s Non-Habitual Resident program, or NHR. Through that setup, personal income is taxed at 20%, while dividend income is taxed at 0%.

My LLC conveniently pays me a monthly dividend, which covers my living expenses.

Thus, my local Portuguese tax rate is 0%. And it will be for eight more tax seasons.

Now, I need to tell you that the NHR program has morphed as Portugal transitions to NHR 2.0. While the 0% dividend rate will remain part of the incentive, qualifying for the new NHR is much more difficult because Portugal is now focused on luring expats in certain fields, such as teaching, technology, the sciences, agriculture, and others.

Nevertheless, the point here isn’t to pitch you on Portugal, per se.

It’s to point out that there are huge tax advantages when you live/work overseas.

In Italy, for instance, expats can qualify for a five-year tax exemption on 70% of their income, and 90% in certain southern regions of the country. In the United Arab Emirates, the personal tax rate is 0%.

Singapore, a fabulous place by the way, imposes no tax on foreign income. Costa Rica, Panama, and Uruguay operate territorial tax systems, so that only income earned within each country’s border is subject to taxes. Money earned and kept offshore generates no tax obligation locally—a great setup for retirees.

I could go on and bore you to death with more examples, but you see my point: There are lots of ways to radically reduce your tax burden overseas.

As an expat worker, there’s the FEIE. And depending on the country you choose to live in, there are numerous opportunities to pay 0% tax.

The FEIE won’t benefit retirees since the write-off is predicated on “earned income” (i.e. from work / a job). But living in a country with a territorial tax system can still significantly soften the retiree tax blow, since you’re not paying state taxes in the US (assuming you don’t live in one of the eight states with no personal income tax; nine if you include New Hampshire, which only taxes interest and dividends).

While DOGE is busy uncovering the idiotic areas where our tax dollars go… you could be living someplace where your tax bite is so small you barely even feel it.